Default rates on mortgages, credit cards and other household loans have recently increased and are expected to rise further in the coming months, according to a Bank of England survey of lenders.
Demand for credit card borrowing increased in recent months, and is expected to increase further by the end of May, the report found.
Lenders reported that overall demand for non-mortgage lending had increased in the past few months and was expected to increase further in the coming months.
Karim Haji, global and UK head of financial services at KPMG, said: “Considering inflation is now falling and is expected to drop to below the Bank of England’s 2% target in the months ahead, rising demand for credit card lending in (the first quarter of 2024) suggests a more positive economic outlook hasn’t fed through to household finances yet.
“Defaults across all unsecured (non-mortgage) lending increasing over the same three-month period indicates many people are still struggling to meet their day-to-day costs. Lenders will need to be vigilant and continue to offer support for borrowers in the interim.”
Lenders reported that mortgage availability to households increased in the three months to the end of February and is expected to increase over the three months to the end of May.
Demand for mortgages for house purchase and remortgaging is also predicted by lenders to increase.
The availability of non-mortgage credit to households was unchanged and was expected to remain broadly the same in the three months to the end of May.
Lenders reported that the length of interest-free periods on credit cards for balance transfers had decreased in the previous few months and was expected to remain unchanged by the end of May.
The length of interest-free periods on new credit cards for purchases had slightly increased in recent months and was expected to be unchanged by the end of May.
Looking at loans to businesses, default rates have also slightly increased for small and medium businesses but were unchanged for larger firms in recent months, the Bank of England’s Credit Conditions Survey found.
Default rates are expected to increase for small and medium-sized businesses in the next few months and be unchanged for larger firms.
Lenders reported that the overall availability of credit to the corporate sector had been unchanged in the past few months. The overall availability of credit to businesses was expected to slightly increase by the end of May.
The Bank of England carries out the survey every quarter as part of its role to maintain financial stability.
The results are based on banks’ and building societies’ own responses to the survey, rather than the Bank’s views.
Lenders were asked to report changes in the three months to the end of February 2024, relative to the period between September and November. They were also asked about expected changes in the three months to the end of May 2024, relative to the period between December and February.
The survey was carried out between February 26 and March 15.
